Political Economics in the USSR and EU

Since the late 1970s, I had been travelling and doing business in the Soviet bloc and USSR. Soon after its collapse, I was working for a German company, responsible for its major interests in Ukraine and development in Central Asia.

The fall of the USSR was sudden and to the ill informed, unexpected. Those of us who knew it, had wondered for years how ordinary people coped with the shortages and glaring inequalities. Of course, the army and secret police kept the lid on dissent, but I noticed an increase in 'dumb insolence' by many of the oppressed.

After the break up, people could travel, closed cities and regions opened. Tourists bought Lenin busts and McDonalds had queues of eager new customers. Under the exited froth some, who understood the system, became fabulously rich buying up share allocations for peanuts or a bottle of vodka. A new oligarchy took control, although most were recycled old elite.

Central to the creation of the USSR was the use of economics for political purposes.

Kulaks were an early threat to communist hegemony. Collectivisation and murder dealt with them. The famine of 1932/3 and continuing food shortages were an acceptable price, (as Lev Kopelov put it ".... We were realizing historical necessity. We were performing our revolutionary duty ... for the socialist motherland ....".) Political, or more properly Imperial, concerns underpinned all. The WW2 necessity of relocating industry away from the advancing Germans developed into a deliberate policy. Factories were built to employ people and demonstrate the motherland's bounty. From the outset, member states (and new ones) were 'stiffened' by Russian ethnic immigrants and Russian became the official language. Students studied in different states, the lucky ones in Moscow. All designed to cement the empire by creating a new nationality 'Citizen of the USSR'. It was a multinational state in which dozens of nationalities had been dissolved.

Bulgaria was one of the Soviet bloc countries I dealt with. One evening I found myself alone with an unusually tipsy representative of Bulgarplod. Earlier, I'd escaped my minders and was horrified by the empty food shops and few rotting fruit and vegetables on sale. I challenged him. He was drunk enough to be honest. "Ah well," he explained," the first quality is for the West because we need hard currency. The second goes to other states of the USSR and Soviet bloc to show them that it's paradise here. The third, and worst, is for the locals - it's for the good of the party." The good of the party and the motherland was paramount.

Supply chains and rules

Many reasons and theories have been advanced for the collapse of manufacturing industry post-USSR break up. Central planning, concentration on military production, inflexibility, all played their part. To me, as a consultant on the ground, one factor stood out. Mostly, the factories were dependent on complicated supply chains for raw materials and parts. One depended on a raw material that was shipped in from 4,000 km away. Supply chains knitted the empire together in mutual need. They ensured its destruction too. The second denominator was a determined belief by those responsible for the derelict factories that they knew best. It's easy to criticise, but the common extenuating factor was the decades of rule taking and indoctrination that the party knew best the needs of the motherland.

EU Integration – political economics

Those who drive EU integration share much of the thinking of the leaders of the USSR. On 9 May 1950, Robert Schumann delivered a speech written by Monet. He stated that the European Coal and Steel Community ..."Through the consolidation of basic production and the institution of a new High Authority, whose decisions will bind France, Germany and the other countries that join, this proposal represents the first concrete step towards aEuropean federation." Throughout its development as the EEC and EU, this goal has never wavered. Only UK politicians pretend otherwise.

A new multinational state

The EU, like the USSR, is a rule-based organisation. It seeks to create a multinational state in which dozens of nationalisms have been dissolved and the new European emerges. It cannot force everyone to speak the same language, but like the USSR, its citizens have a common passport even if they do not, yet, have a common country. The EU uses economic and industrial policy to promote political integration, the supranational imperial dream and the good of the motherland.

In relation to Brexit, the repeated references to 'supply chain issues' and threats based on them are an example of political economics. The USSR's experience has been quickly, or conveniently, forgotten.

The Treaty on the Functioning of the European Union (TFEU) prohibits state aid that may distort trade between member states. It does not apply where there are only internal effects to a member. Articles 107 to 109 of TFEU provide exceptions all of which are decided by the European Commission. These are:

1.Aid to certain undeveloped regions

2.Promotion of a major project or to put right a serious economic problem

3.The development of certain economic activities or areas or to promote culture or heritage conservation, so long as it is not against the common interest

4.Other categories identified by the Council.

Many have cried foul when industries have relocated from higher cost west to lower cost east. The explanation for those who are unaware is above; the interest of the motherland is paramount. Theirs is an acceptable sacrifice.

The EU's history is of crises

A Comparative Political Studies 2015 paper suggested that "Intergovernmental bargaining .... force states with diverse preferences to settle on lowest common denominator solutions." A crisis follows and ... "Member states respond by again agreeing to lowest common denominator solutions, which address the crisis and lead to deeper integration."

To an outside observer, the creation of crises seems a more deliberate birth pain policy. The Euro is a case in point. Economic and Monetary Union (EMU) is essential if the dream of a new nation state and citizen's identity is to be realised. The Euro was launched before political agreement in order to provoke a running crisis that can only be solved by EMU. In political economics the cart drags the horse.

A currency, a passport, but no country

The June 2015 five presidents report suggests that "a deep and genuine EMU" can be reached by 2025. EMU has four dimensions:

1.Economic union: Focusing on convergence, prosperity, and social cohesion.

Germany is the only country with experience of EMU. Between the BRD and DDR. Peer Steinbrück, German finance minister from 2005 to 2009, said in 2011, that, in the first 20 years, unification had cost west Germany 2 trillion euros and continued at the rate of 100Billion a year. Despite that, (according to Destatis) east GDP is two-thirds the rate of the west. Unsurprisingly, Germany is fearful of completing EMU and accepting the obvious risk of a lot more DDRs.

Despite that, they are more than happy with the Euro. Because of unification, the DM was weak when rates were fixed for the EZ. The IMF says Germany joined with a 6% competitive advantage compared with the country's economic fundamentals. Updated IMF data suggests that, by 2017, the German pricing edge built into the euro had about doubled to over 12%. Although denied, Der Spiegel claims a 2012 analysis by the German ministry of finance found that the costs of re-introducing the D-Mark would lead to an up to 10 per cent fall in GDP in the first year, and unemployment of over 5million.

All of this was predictable. Did federalist hubris use fear to advance its cause? Mitterrand saw the Euro as a way of anchoring a united Germany within the EU. Kohl accepted it as a price to be paid to secure agreement to German reunification. A reassuring message that there was nothing to fear from a united Germany.

The Euro, a modern form of Dane Geld?

Mario Draghi has called for fiscal union and to complete the banking union, steps that lead inevitably to political union. Without full union, the heterogeneity of the EZ members means crises are inevitable. Draghi has repeatedly said that the ECB cannot address crises in the vacuum of monetary union. In the incomplete EZ there are winners (a few) and losers, and one can but wonder what will happen if the losers wake up to the awkward realisation that the Euro is a modern form of Dane Geld. That zero growth, high unemployment and failing industries in their countries, was, and is, the price of German containment; the price to be paid for the realisation of yet another European Imperial dream.Perhaps, that is the crisis that will bring the Monet - Schumann dream to fruition, or provoke an economic, and human, tragedy not seen since the fall of the USSR and its satellites.

About the author

Michael Wood dropped out of art school and worked in agriculture until accepted for business training by a major Japanese trading house. Working for major Japanese, Dutch and German firms he was involved in International trade from the mid sixties to his retirement in 2010. His career focus was mainly on agricultural products and he has extensive knowledge of perishables both short sea imports and deep sea exports. He travelled widely and has lived and worked in Nigeria, Ukraine, Central Asia as well as the EU (Belgium, Germany and Luxembourg). He became involved in information technology in the late 90s and was engaged by LM Ericsson to advise on a mobile telephone business model applicable to sparsely populated developing countries in Central Asia.

Prior to retirement he was CFO and GM of a London based manufacturing, warehousing and property company. The manufacturing division sourced raw materials and parts from Italy, UK, China, Taiwan and India.

After retirement he developed disability products with Chinese manufactures and imported them into the UK.

He now lives in London with his wife, a lawyer, and writes on a variety of subjects including disability issues.